City analysis finds that rates could match Xcel's with better environmental results

The Boulder City Council meets in a study session to discuss municipalization at 6 p.m. Tuesday in the Municipal Building, 1777 Broadway.

An online survey opens Wednesday and continues through March 27 at bouldercolorado.gov. Inspire Boulder, the city's digital town hall platform, also hosts ongoing discussions about municipalization plans.

A conference call to address concerns and questions from the business community takes place from noon to 1 p.m. March 12. To register in advance, go to bouldercolorado.gov.

An open house on municipalization strategies takes place from 6:30 to 8:30 p.m. March 13 at the West Senior Center, 909 Arapahoe Ave.

The Boulder City Council holds a public hearing and votes on a municipalization strategy at its April 16 meeting.

A city-owned and -operated electric utility would be able to offer lower rates than Xcel Energy, reduce greenhouse gas emissions by more than 50 percent from current levels and obtain 54 percent or more of its electricity from renewable resources, Boulder's energy czar said.

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City officials released the results Thursday of several months of analysis that looked at six different options for Boulder's energy future.

The first option was staying with Xcel Energy with no change to the way it operates. The other five options were based on the city owning its own utility and having more freedom to innovate. With the help of engineering and financial consultants, the city looked at options that would produce the lowest rates for consumers, the greatest use of renewable resources and the greatest reduction in greenhouse gas emissions.

Three of the five options met the metrics adopted by the City Council last year to ensure that any municipal energy utility would meet the charter requirements approved by voters in November 2011. Boulder voters narrowly approved two ballot measures that fall, one to authorize the City Council to create a municipal energy utility and the other to raise the occupation utility tax to fund research and implementation of a municipalization plan.

The charter conditions are: that rates do not exceed those charged by Xcel Energy at the time Boulder acquires the system; that the rates produce enough revenue to pay operating expenses and debt payments, along with a reserve worth 25 percent of debt payments; that the system's reliability be comparable to Xcel's; and that the city have a plan to reduce greenhouse gas emissions and increase renewable energy.

"We believe the findings demonstrate that a municipal utility could be good for consumers, good for Boulder businesses and good for our planet," Heather Bailey, Boulder's executive director of energy strategy and electric utility development, said in a news release. "We look forward to an informed conversation over the next couple of months about how best to proceed."

The City Council will discuss the report's findings at a study session Tuesday. The purpose of that meeting isn't to make a decision, but to discuss the report's findings and determine what additional information council members want before they make a decision about which strategy to pursue April 16. There will be a series of meetings and opportunities for online discussion between now and April, and there will be a public hearing at the April meeting.

City officials have said there are two questions they must answer: Can the city form a municipal energy utility under the charter requirements? And should the city form a municipal energy utility?

"Based on the current analyses, the answer to whether it is possible to municipalize is yes, and the findings to date are promising in terms of the potential value a local electric utility could bring when compared to other alternatives," the report said.

According to the report, a local energy utility would be able to:

Offer lower rates to residential, commercial and industrial customers, not just on "day one" but over a 20-year time frame;

Maintain or exceed current levels of reliability, and future investments could enhance dependability;

Reduce greenhouse gas emissions by more than 50 percent from current levels and exceed the Kyoto Protocol goals within the first year;

Get 54 percent or more of its power from renewable resources, such as wind, hydro and solar;

Create a model public utility that would allow for innovation in everything from energy efficiency to customer service.

The environmental potential of the utility is likely to feature prominently in discussions of how to proceed. The city has struggled to meet the Kyoto goal of getting emissions to 7 percent below 1990 levels through energy-efficiency programs alone. At the same time, city leaders have said they need to adopt much more ambitious greenhouse gas reduction goals if they are to have an impact on global warming.

City officials and consultants said the city would make much quicker progress on cutting emissions if it stopped getting so much electricity from coal-fired power plants, and the desire for more renewable energy was a major driver behind the municipalization campaign.

However, members of the business community have raised concerns about whether they'd get the same reliability from a new municipal utility as they get from Xcel.

In the report, city officials said they are committed to acquiring the necessary infrastructure to provide redundancy within the system and following industry best practices to ensure reliable power.

"The city recognizes that it is fortunate to have major employers who are industrial customers, and these customers have processes that require high-quality power and a reliable supply," the report said. "Power failures can have significant financial impacts to these customers. Therefore, it is critical to not only talk to these companies about their needs and concerns, but to have equipment, systems and processes in place to meet those specific needs."

In addition to remaining with Xcel, the options examined by the city are:

Phase out power sold by Xcel -- The city describes this as a "risk-mitigation" strategy that would involve the creation of a city-run utility that would buy power from Xcel for the first five years as the city ramps up its own capacity. After the first five years, it would be free to buy power from other sources and expand the mix of renewable energy.

This option meets the charter requirements for reliability, rate parity and debt service coverage and exceeds them for emissions reductions and renewable energy. This is the only option that does not allow the city to meet Kyoto goals within the first year because it maintains Xcel's resource mix for the first five years.

Low-cost options -- There were two versions of this option, which seeks to balance the desire for low rates with the desire to reduce greenhouse gas emissions. The first "low-cost" version includes a portfolio that gets 25 percent of its energy from coal in 2017, compared with 50 percent for Xcel, and the second "low-cost, no coal" option excluded the fossil fuel entirely. Both options meet the charter requirements for reliability, rate parity and debt service coverage and exceed them for emissions reductions and renewable energy.

Lowest greenhouse gas emissions -- The city also modeled two versions of this option, which gave priority to reducing greenhouse gas emissions regardless of cost. Both versions were modeled without coal. One was based on current electricity consumption levels, and the other "reduced-use" version was based on anticipating increased energy efficiency in the future, particularly in the commercial sector. These options do not meet the rate parity requirements.

To analyze the various options, the city looked at a 20-year time frame from 2017 to 2037 and used a large number of inputs. Certain "high-impact" variables were analyzed at a wide range of costs to reflect the volatility of the energy market and the uncertainty of litigation to obtain Xcel's existing power system. Those variables included gas prices, wind prices, interest rates, operations and maintenance costs, "stranded" and acquisition costs and the ability of the utility to generate the revenue to cover debt service.

The report estimated that stranded costs and acquisition of the current electric grid could range from $150 million in a best-case scenario to $405 million.

The report said it projected future rate increases from Xcel based on publicly available information, but it said the "baseline" of staying with Xcel could not be analyzed as thoroughly as municipalization options. It questioned whether Xcel has fully accounted for the impact of a $3.5 billion capital plan or rising coal prices.

City officials said they sought out industry experts and stakeholders to advise them on the modeling process to ensure the results were "realistic, conservative and locally relevant." Increased electricity use over the next 20 years was based on Xcel's Boulder-specific projections, with the exception of the "reduced-use" option.

An Xcel Energy spokeswoman said company officials need time to study the city's findings.

"The city has taken some time to put some thoughtful analysis into this," Xcel Energy spokeswoman Michelle Aguayo said. "We want to be able to have some time to do our own thoughtful analysis."

City officials said they have invited Xcel to participate in Tuesday's study session, though officials with the utility have not confirmed.

If the City Council votes to proceed with creating a municipal energy utility in April, the city would bring in a third-party independent reviewer to do additional due diligence and begin working with state and federal regulators about the next steps.

City officials anticipate they would begin the process of acquiring Xcel's network in Boulder in August.

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